Hopes fade for Indonesian competition law changes

31 January 2017 9:56am

5th September 2016. By Jet Damazo-Santos

Much-delayed amendments to Indonesia’s competition law are at risk of not being passed under President Joko Widodo’s administration, leaving Southeast Asia’s largest economy exposed to increasingly complex antitrust issues that its competition regulator is ill-equipped to handle.

Lawmakers had promised to pass the amendments by July this year, but Deswin Nur, the head of foreign cooperation at the Business Competition and Supervisory Commission, or KPPU, says the draft hasn’t even cleared the House of Representatives’ commission level yet.

“I think it’s too ambitious for it to be finished this year,” Deswin told MLex, explaining that there didn’t appear to be any sense of urgency to get the bill passed. “Every time we say ‘let’s finalize it,’ they always say there are articles that still need to be discussed.”

The KPPU has been pushing for amendments to Indonesia’s 19-year-old competition law for about a decade now. Getting them passed would substantially alter the way the regulator has been working.

Currently, more than 70 percent of KPPU’s cases involve bid rigging, with cartels making up most of the rest. There have been only a couple of market dominance cases over the past decade.

That is because bid rigging is easiest to prove, with obtaining documentary evidence being “easy,” according to Deswin.

When it comes to cartels, by contrast, because the KPPU lacks the power to issue summonses, conduct raids, and offer leniency, the regulator is hard pressed to prove collusion allegations.

Deswin said that currently the only way the watchdog could get strong evidence was from whistleblowers, or if a company makes a stupid mistake such as publishing incriminating information publicly.

A combination of investigative powers, a leniency program, and the threat of fines higher than the current 25 billion rupiah ($1.8 million) cap could turn KPPU into a more aggressive and effective cartel-fighting agency. The draft law proposes expanding KPPU’s reach to cover any company whose actions affect the Indonesian economy, regardless of whether it has a legal presence in the country or not.

But insiders say there are concerns in Indonesia over enforcement agencies having too much power. For example, lawmakers have long been trying to abolish the Corruption Eradication Commission’s warrantless wiretapping power, which has been used to convict several high-ranking officials.

An MLex source privy to the legislative process said lawmakers preferred that the KPPU exercise investigative powers through the police, despite the force often being ranked as one of the most corrupt institutions in the country.

The amendments could also likely lead to increased oversight of mergers and acquisitions.

Fahrul S. Yusuf, a partner at SSEK Law Firm in Indonesia, said most of the firm’s clients liked the fact that the country operates a post-merger notification system, especially multinationals involved in global mergers, because it doesn’t hold up their closing periods.

The proposed amendments would change all that, first with a shift to a pre-merger notification requirement, and second, by stating that it would cover asset acquisitions and joint ventures. The current law requires notification only of equity acquisitions.

A post-merger review can currently take up to a year, lawyers say, which gives an indication of the low priority accorded to the task. And although the KPPU has the power to unwind anticompetitive M&A deals, it has never done so.

Without the amendments, officials fear Indonesia will be more vulnerable to cartel conduct, particularly given that the Asean Economic Community came into being this year.

KPPU commissioner Sukarmi has previously pointed out that the potential for cartels at the regional level would increase following the implementation of the Asean Economic Community, citing the example of possible anticompetitive agreements between Indonesian and Malaysian palm oil companies.

Fahrul said recent moves to open up Indonesia’s economy to more foreign investment were expected to boost the appetite for acquisitions in the country.

As no draft bill has yet been tabled in the House of Representatives’ plenary session, Deswin doesn’t believe it has a chance of passing this year. A more realistic scenario would be that the amendments are passed sometime in 2017, even though the timing is less than ideal.

An election in 2019 will see changes in the composition of parliament, Deswin said. In 2018, lawmakers will be busy campaigning, and next year they will be raising funds from business donors.

That means if the legislature fails to pass the amendments by around mid-2017, the chances of them being passed anytime soon will fade, or the KPPU may get a version of the law that is watered-down after lobbying by business donors.

ABA 2019